FINANCIAL & MANAGERIAL ACCOUNTING
FINANCIAL & MANAGERIAL ACCOUNTING
7th Edition
ISBN: 9781260368192
Author: Wild
Publisher: MCG CUSTOM
Question
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Chapter 18, Problem 4PSA

1.

To determine

To identify: Break- even point of sales in dollars for year 2017.

1.

Expert Solution
Check Mark

Explanation of Solution

Given,
Fixed cost is $250,000.

Calculated values,
Contribution margin ratio is 20% or 0.2 (from working note).

Formula to calculate break-even point of sales in dollars,

    Breakeven point= Fixedcost Contribution margin ratio

Substitute $250,000 for fixed cost and 0.2 for contribution margin ratio.

    Breakeven point= $250,000 0.2 =$1,250,000

Working note:

Given,
Sales are $1,000,000.
Contribution margin is $200,000.

Formula to calculate contribution margin ratio,

    Contribution margin ratio= Contributionmargin Sales ×100 = $200,000 $1,000,000 ×100 =20%

Hence, contribution margin ratio is 20%.

Hence, break-even point of sale is $1,250,000.

2.

To determine

To identify: Break- even point of sales in dollars for year 2018.

2.

Expert Solution
Check Mark

Explanation of Solution

Given,
Fixed cost is $450,000 ( $250,000+200,000 ) .
Units sold are 40,000 units.

Calculated values,
Contribution margin ratio is 60% or 0.6 (from working note).

Formula to calculate break-even point of sales in dollars,

    Breakeven point= Fixedcost Contribution margin ratio

Substitute $450,000 for fixed cost and 0.6 for contribution margin ratio.

    Breakeven point= $450,000 0.6 =$750,000

Working note:

Calculation of selling price per unit,

    Sellingpriceperunit= Sales Unitssold = $1,000,000 20,000 =$50

Calculation of sales in 2018,

    Sales=Sellingpriceperunits×Unitssold =$50×40,000units =$2,000,000

Calculation of variable cost per unit,

    Variablecostperunit= Variablecost Unitssold = $800,000 20,000 =$40

As new machine reduced variable cost up to 50%, so the new variable cost will be $20.

Calculation of variable cost in 2018,

    Variablecost=Variablecostperunits×Unitssold =$20×40,000units =$800,000units

Calculation of contribution margin,

    Contributionmargin=SalesVariablecosts =$2,000,000$800,000 =$1,200,000

Formula to calculate contribution margin ratio,

    Contribution margin ratio= Contributionmargin Sales ×100 = $1,200,000 $2,000,000 ×100 =60%

Hence, contribution margin ratio is 60%.

Hence, break-even point of sale is $750,000.

3.

To determine

To prepare: A forecasted contribution margin income statement for the company.

3.

Expert Solution
Check Mark

Explanation of Solution

Statement to show the contribution margin income statement

Company A
Income Statement
For the Year Ended December 31, 2018
Particulars Amount ($)
Sales 1,000,000
Less: Variable Cost 400,000
Contribution Margin 600,000
Less: Fixed Cost 450,000
Pre Tax Income 150,000
Table(1)

Working note:

Given,
The numbers of units sold is 20,000.

Calculated values (working note),
The selling price is $50.
Variable cost per unit is $40.

Calculation of total sales,

    Totalsales=Numbersofunits×Salesprice =20,000units×$50 =$1,000,000

The total sales are $1,000,000.

Calculation of total variable cost,

    Totalvariable cost=Numbersofunits×Variablecost per unit =20,000units×$40 =$800,000

The total variable cost is $800,000. As new machine reduced variable cost up to 50%, so the new variable cost will be $400,000.

Hence, the pretax income of Company A is $150,000.

4.

To determine

To identify: The required sales unit to earn the target income.

4.

Expert Solution
Check Mark

Explanation of Solution

Given,
Fixed cost is $450,000.
Target net income is $200,000.

Calculated,
Unit contribution margin is $30.

Formula to calculate required sales will be,

    Required sales= Fixed cost+Target net income Unitcontributionmargin

Substitute $450,000 for fixed cost, $200,000 for target net income and $30 for unit contribution margin.

    Required sales= $450,000+$200,000 $30 = $650,000 $30 =21,666.67units

Working note:

Given,
Per unit selling price is $50.
Per unit variable cost is $20.

Calculation of unit contribution margin,

    UnitContributionmargin=PerunitsellingpricePerunitvariablecost =$50$20 =$30

Calculation of required sales in dollars,

    Required sales=Required salesinunits×Sellingpriceperunit =21,667×$50 =$1,083,350

Hence, required sales are 21,667 units and $1,083,350.

5.

To determine

To prepare: A forecasted contribution margin income statement for the company when no income tax is due.

5.

Expert Solution
Check Mark

Explanation of Solution

Statement to show the contribution margin income statement

Company A
Income Statement
For the Year Ended December 31, 2018
Particulars Amount ($)
Sales 1,083,333
Less: Variable Cost 433,333
Contribution Margin 650,000
Less: Fixed Cost 450,000
Pre Tax Income 200,000
Table(2)

Working note:

Given,
The numbers of units sold is 21,666.67.

Calculated values (working note),
The selling price is $50.
Variable cost per unit is $20.

Calculation of total sales,

    Totalsales=Numbersofunits×Salesprice =21,666.67units×$50 =$1,083,333.5

The total sales are $1,083,333.5.

Calculation of total variable cost,

    Totalvariable cost=Numbersofunits×Variablecost per unit =21,666.67units×$20 =$433,333.4

Hence, the pretax income of Company A is $200,000.

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Chapter 18 Solutions

FINANCIAL & MANAGERIAL ACCOUNTING

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